BofA employees could face charges in U.S. fraud case: prosecutor

NEW YORK Thu Oct 25, 2012 6:19pm EDT

An ATM machine at a Bank of America office is pictured in Burbank, California August 19, 2011. REUTERS/Fred Prouser

An ATM machine at a Bank of America office is pictured in Burbank, California August 19, 2011.

Credit: Reuters/Fred Prouser

NEW YORK (Reuters) - Bank of America Corp (BAC.N) employees could face civil fraud charges as part of a federal lawsuit accusing the bank of causing taxpayers more than $1 billion in losses by selling toxic mortgage loans to Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB), a prosecutor said on Thursday.

The comments were made at a hearing in Manhattan federal court to set a timetable for the U.S. Department of Justice's first civil fraud lawsuit over mortgage loans sold to the two big mortgage financiers, which the government had announced on Wednesday. Fannie Mae and Freddie Mac were bailed out and put in government conservatorship in 2008.

"Potentially, the government may amend its complaint to include individuals, present or former employees of Bank of America," Assistant U.S. Attorney Pierre Armand told U.S. District Judge Jed Rakoff.

The judge asked the prosecutors to amend their complaint by year end. The case involves mortgage lender Countrywide Financial Corp, which Bank of America bought in July 2008.

Most lawsuits by federal and state investigators against major banks over matters related to the recent financial crisis name few or no individuals as defendants.

An exception is the 18 lawsuits filed last year by the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac, which named more than 130 individual defendants.

According to Wednesday's complaint, Countrywide in 2007 invented, and Bank of America continued, a scheme known as the "Hustle" to speed up processing of residential home loans.

Operating under the motto "Loans Move Forward, Never Backward," mortgage executives tried to eliminate "toll gates" designed to ensure that loans were sound and not tainted by fraud, the government said.

This led to defect rates that approached 40 percent, roughly nine times the industry norm, but Countrywide concealed this from Fannie Mae and Freddie Mac, and even awarded bonuses to staff to "rebut" the problems being found, it added.

In court on Thursday, Brendan Sullivan, a lawyer for Bank of America, said "fascinating issues arise here" and the complaint was "not like anything we have seen before."

The lawsuit seeks civil fines and triple damages under the federal False Claims Act, which the government has used several times in recent years against Wall Street.

Lawrence Grayson, a bank spokesman, on Wednesday said the bank has "acted responsibly" to resolve older mortgage matters, but that at some point could not be expected to compensate every entity claiming losses caused by the economic downturn.

In February, Bank of America agreed to a $1 billion settlement of False Claims Act allegations over home loans submitted for insurance provided by the Federal Housing Administration, in a case from the U.S. Attorney's office in Brooklyn, New York.

The case is U.S. ex rel. O'Donnell v. Bank of America Corp et al, U.S, District Court, Southern District of New York, No. 12-01422.

(Reporting By Grant McCool and Jonathan Stempel; Editing by Tim Dobbyn)

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Comments (2)
AlkalineState wrote:
Good. Working at B of A is not compulsory. Therefore, any employees who broke the law there, even if just taking orders, could have quit instead of taking the orders. Arrest them all.

Oct 25, 2012 6:25pm EDT  --  Report as abuse
puzzled wrote:
@AlkalineState – While I agree with your request, it is sad to say that the Story indicates the employess could face “Civil” charges – no mention of criminal charges – therein lies the problem with enforcement (lack thereof) – if the employees were complicit in lying to investors and knowingly acted to defraud investors, why are they being charged only by the civil court? They are all probably indemnified by BofA for their legal costs and the Government is too scared to go after them – until fraudsters are taught aappropriate lessons, they will continue to behave in deviant ways – I wish the enforcement bodies would understand that

Oct 25, 2012 7:06pm EDT  --  Report as abuse
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